I am honored to stand before you today as governor of all the people of Indiana

and I know that, together, we will write the next great chapter of Indiana history.

Thank you for that warm welcome. To my colleagues gathered here I say, my remarks will not be as brief as last week's inaugural address, but your feet will be warmer!

Article V, of the Constitution of the State of Indiana provides that the Governor

shall "give to the General Assembly information touching the condition of the State, and recommend such measures as he shall judge to be expedient."

In discharging that duty, I come before you to proclaim that the state of our state

is strong and growing stronger because we have good government and because we serve a great people. If we will remain bold, confident and optimistic, I am positive we can lead our state from good to great.

Hoosiers owe a debt of gratitude to all the leaders gathered in this room. Because of your service in the recent past, our state has become the fiscal envy of the nation and a model from how good government works.

We have balanced budgets and surpluses when most states are broke or struggling. We are one of only nine states with a AAA bond rating – higher than the federal government.

But while we rightly celebrate our progress, these are still difficult times for

too many in our state.

As we gather this evening, a quarter million Hoosiers are out of work, and nearly one million Hoosiers lack the skills they need to succeed in today's marketplace.

Despite progress in education, too many of our schools are still lagging behind, some way behind.

And, especially heartbreaking to this father, one in five Hoosier children lives

in poverty. That is unacceptable.

With so many families and businesses struggling just to get by, we have no choice but to remain bold.

We have to do better.

And doing better starts with the right priorities. It starts by adopting a roadmap

that says "yes" to our future and believes in the unlimited potential of our people.

It all starts by making job creation job one.

That's why on day one of our administration, I signed a moratorium on any new regulations to ensure that Indiana is not burdening Hoosier employers with unnecessary red tape.

And that's why we proposed a jobs budget last week.

Our budget is honestly balanced, holds the line on spending, funds our priorities, builds our reserves and lets hardworking Hoosiers keep more of what they earned.

Let's be clear: Government doesn't create jobs, other than government jobs, but government can create the conditions where people can be the risk takers, innovators, and workers who will create the jobs and opportunities of tomorrow.

And everything starts with fiscal discipline, the surest foundation for economic

growth.

I believe our State must live within its means and never spend a single dollar more than it collects.

So, first, we have submitted an honestly balanced budget, with no tax increases.

Second, our budget holds the line on spending.

I believe the government budget should never grow faster than the family budget. Our budget is a full percentage point less than inflation. By holding the line on spending, Indiana can continue to stand out as a beacon of fiscal restraint – a state that knows how to fund its priorities in a responsible way.

And our budget funds our priorities:

Our budget proposes an increase in funding for education, including full day kindergarten, and fully funds teacher pensions each of the next two years. As a result, education represents 64 percent of all state expenditures.

In addition, we provide $18 million over two years to ensure that all Hoosier workers have the skills to find a job in today's economy.

And since roads mean jobs, we're investing nearly $347 million in excess reserves on Indiana's roads, bridges and infrastructure.

Our budget creates a partnership with Indiana's life sciences industry and our universities, to spur research and produce high-paying jobs.

And because Indiana is agriculture we envision our state becoming a hub of food and agricultural breakthroughs by supporting an Agriculture Innovation Corridor

Our budget also ensures that the Indiana Economic Development Corporation is adequately equipped to both attract more business and investment to Indiana and operate with greater transparency and accountability to the public.

And lastly, our budget keeps faith with those to whom we owe the most.

It was Abraham Lincoln who said we must, "care for him who shall have borne the battle." But in Indiana, our veterans are hurting, and they need our help. Post-9/11Hoosier veterans have an unemployment rate higher than the national average. We have to do better. We owe these heroes nothing less. Heroes like Big Tim Wysong.

He got that nickname on the football team at Hagerstown High School, where he graduated in 2006. He decided to join the U.S. Army and arrived in Afghanistan on his first deployment in 2009. One night in June, driving through a village, their convoy came under attack. An RPG (rocket propelled grenade) exploded on the door, pushing copper plating through it, destroying Tim's left leg. Nevertheless, Tim Wysong was able to hold the 350-pound door shut until they were able to stop, likely saving the lives of everyone in the vehicle. He's had close to two dozen surgeries. The most recent one was done a year ago in August. Last fall he got married and did his first 5K.

Big Tim Wysong is an American hero, and Big Tim is with us tonight.

Our budget makes a clear commitment to Hoosiers who have served their nation in uniform by investing more money in job training and certifying Veteran Service Officers. I have also set a goal to procure 3 percent of state contracts from veteran-owned businesses. They stepped forward for us, now it's our turn.

And, finally, our budget puts taxpayers first.

Government should only collect what it needs. When government collects more than it needs, it should return that money to the hardworking taxpayers who earned it in the first place. That's why I'm proposing we lower income taxes by 10 percent, across the board, for every Hoosier over the next two years

Hoosiers work hard. They labor in a fragile economy. They save and invest in their families and businesses and family farms. Why wouldn't we want them to keep more of what they earn?

Now, I know there are some who say we have to choose between letting the people of Indiana keep more of their hard-earned dollars and meeting the state's priorities.

As our budget clearly shows, we can do both.

The budget I submitted last week is honestly balanced, funds our priorities, reduces by 10 percent the tax bill Hoosiers currently pay, and still maintains reserves well in excess of the resources we would need to meet emergency and unforeseen contingencies.

So let's be honest with our fellow Hoosiers: We can afford to do this.

But why cut taxes now?

First, at a time when federal taxes have just gone up on all working Hoosiers, most small businesses and family farms and our medical device industry, now more than ever, Hoosiers could use some tax relief.

Second, this reduction in taxes will unleash half a billion dollars into the private, voluntary economy every year. Letting Hoosiers keep more dollars to spend, invest or save will be good for Indiana families and businesses.

Third, reducing the personal income tax rate is the best way to lower taxes on small businesses and family farms. Ninety-two percent of Hoosier small businesses pay their taxes under the individual income tax rate. By lowering taxes, small businesses will have more money to hire new employees, purchase new equipment and grow.

Fourth, by lowering the personal income tax rate by 10 percent, it will be official:

Indiana will be the lowest taxed state in the Midwest. Companies who are here will have one more reason to expand and we will give businesses outside Indiana one more reason to move to the Hoosier state.

Because we can afford to cut taxes for every Hoosier, I believe we should. And on behalf of millions of hardworking Hoosiers, small businesses and family farms, I respectfully ask for your support.

Our jobs budget is all about getting this economy moving, but we can't succeed in the marketplace if we don't succeed in the classroom.

We have to put kids first and ensure that every child in Indiana has access to a

world-class education at public school, public charter school, private school or

home.

I'm sure everyone in this Chamber has a favorite teacher. Mine is sitting right

up there in the balcony-our new First Lady Karen Pence.

My wife Karen has spent her career in the classroom. We both believe teaching is a calling, and Indiana has the best teachers in the world.

When most people tell you about their favorite teacher, they tell you about the

one who pushed them the hardest, who challenged them to grow; the teacher who held them to a high standard.

Those teachers know that setting high expectations works. We believe that, too.

Indiana teachers and schools have shown that they will rise to the challenge and make tremendous gains for our children. This October, we learned that 207 schools received the highest school ranking for the first time. Forty-three schools moved up three letter grades. Twenty-eight schools moved from the lowest ranking to a mid-ranking. This is a testament to the commitment and excellence of our teachers, and proof that our accountability system produces gains for our schools.

When it comes to our public schools, I believe we should fund excellence in our schools and our teachers.

That's why we proposed an increase in funding for schools each of the next two years, with the second year based on school performance and an additional $6 million in teacher excellence grants to increase pay for our high-performing teachers.

We must continue to take steps to ensure that every third grader can read, to promote math proficiency by elementary students and to invest in highly successful drop-out prevention programs like Jobs for America's Graduates.

And our administration also will work with our new Superintendent of Public Instruction to cut the red tape that teachers face in the classroom, and let them teach. Our children will get the best education when good teachers have the freedom to teach and are rewarded for excellence.

I have long believed that parents should be able to choose where their children

go to school, regardless of their income. We must continue to expand educational opportunities, especially for those with the fewest resources, beginning with pre-K education.

High-quality early education programs can have immediate and long-term positive effects for our kids. Many communities across Indiana are already launching efforts to provide pre-K programs for at-risk children. One of the best examples is the Busy Bees Academy in Columbus, which serves at-risk and disadvantaged children in my hometown. Let's work together to expand incentives for Hoosiers to support this kind of innovative, community-driven pre-K effort for our low-income children.

In recent years, Indiana has given parents who previously had few choices the ability to choose the public or private school that best meets the needs of their family. This fall, more than 9,000 students attended a school of their choice.

Like Kennedy Davis and her brother Isaiah. The Davis family, from Indianapolis, used the voucher program to send Kennedy to first grade at Trader's Point Christian Academy. She's a second grader there now and her brother Isaiah is in kindergarten thanks, in part, to Indiana's school scholarship and tax credit program. Kennedy and Isaiah are thriving. They're with us today. Keep it up, kids, Indiana is proud of both of you!

We've made progress in expanding choices, but we can do more. Expanding tuition tax deductions, removing the prior year requirement and lifting means testing for foster, adopted, special needs and military families would be a good start.

But when graduation comes, we want to make sure that our schools work for all our kids, regardless of where they want to start in life-whether they are headed for college or want to start a career right out of school.

Let's be clear, every Hoosier child should be encouraged to go to college, and we must work to make sure our kids are college ready and make college more affordable.

To that end, we are proposing to increase funding to our state-sponsored colleges and universities and to tie our funding and financial aid to on-time completion.

Even as we encourage every student to go to college, we recognize not every student is college bound. But they all deserve the same opportunity for success. Since all honest work is honorable work, our schools should work just as well for our kids who want to get a job as they do for our kids who want to get a college degree.

The time has come to make career, technical and vocational education a priority in every high school in Indiana.

To expand career and technical education, we need greater collaboration between agencies, and I propose we create Regional Works Councils to work with business and educators across the state to develop regional, demand-driven curricula to bring high-paying career options to more Hoosiers in high school.

And don't think for a minute that career and vocational education is about limiting the future for some of our kids.

Let me introduce you to Bill Beach. Bill and his wife Juanita are with us tonight,

but we had to work hard to get them here. Turns out his New Albany-based business, which specializes in injection molding and precision tool making, is booming. He's running three shifts and employs 600 Hoosiers in a 410,000-square-foot manufacturing facility.

When I visited Beach Mold and Tool last summer, Bill told me how on the farm when he was a teenager his Dad came to him one day and said, "Bill, your brother's good with the book learning, so he's going to college. You're good with your hands, so you're going to vocational school."

So Bill went to vocational school. They started their company in 1972. As we looked out over the hugely successful business he's running today, I turned to him and said, "Bill, turns out your dad was right. You are good with your hands. Look at what they built!" Join me in commending Bill and Juanita Beach for being such a great example of the American dream.

Career and technical education can provide our students with a pathway to success, just as it did for Bill. It can launch entrepreneurs, give kids a reason to finish high school, and create a well-qualified workforce that will encourage business to build here and grow here.

We have to give our kids, our future, every opportunity for success. That means

quality schools, choices about their education and multiple pathways to success. The more our kids succeed in the classroom, the more Indiana will succeed.

I believe a society can be judged by how it deals with its most vulnerable; the

That's why our budget calls for increasing funding for the Department of Child Services by $35 million so we can protect the lives of our most vulnerable children through additional caseworkers, supervisors, and investments in the emergency hotline.

That's why our budget seeks resources for a comprehensive school safety review. Parents have a right to expect that our children are safe at school.

All of us were heartbroken after every parent's worst nightmare unfolded in Newtown, Connecticut. While others have rushed to the well-worn arguments over gun control, Hoosiers know this is not about access to firearms. It is about access to schools. Hoosiers have responsibilities to protect our kids and Hoosiers have rights. We will protect our kids, and we will protect our rights. Hoosiers know we can do both.

And since an intact family is one of the surest guards against poverty, on my first day in office I signed an executive order requiring certain state agencies to develop family impact statements to ensure that new rules and regulations do not unfairly impact married, two-parent families.

Nothing in this approach to preventing poverty diminishes in any way the heroic

job single parents do raising their children every day in Indiana. My sister is

a single mom and my wife was raised for much of her childhood by a single mom, and we applaud the difficult job those parents do every day. But with twenty-two percent of our children living in poverty, given the undeniable relationship between childhood poverty and unmarried childbearing, Indiana should seek ways to encourage strong, healthy families for our kids, our communities and our state.

Let me close tonight by reflecting on something another speaker said from this podium more than 30 years ago. Addressing Indiana's General Assembly, President Ronald Reagan said, "the federal government is still operating on the outdated and...arrogant assumption that the states can't manage their own affairs." He predicted that the "great American experiment" would soon enter a new phase and that you, here in this room, would be the ones to carry this experiment forward and "offer the most creative solutions and most promising hopes for our nation."

As Hoosiers have shown over the past eight years, Reagan was right.

Hoosiers have found practical Indiana solutions to the challenges facing their communities. We have one of the most innovative healthcare programs in the country. We have implemented education reforms that are a model for the nation. And we have built our roads on time and under budget.

On these and other important matters, we must never stand by and let the federal government dictate our aims, our hopes, and our wishes for us. As your Governor, I will never stop standing for the rights of Indiana's people to run our schools, choose our healthcare and produce our energy the Indiana way.

The road ahead of us will not be easy. But we know that Hoosiers are willing to

do hard things, to embrace change, to demand a government as good as our people, to build schools of promise and policies that will ensure jobs and opportunities for this generation and the next.

To do this, we must continue to live within our means, hold the line on spending, and let Hoosiers keep more of their hard-earned income. We must invest in schools and roads, and seek ways to support the state's most vulnerable citizens and strengthen the institutions that nurture the character of our people.

This is Indiana's moment.

We can put Hoosiers back to work and make Indiana first-first in job creation, first in education, and first in quality of life.

Together, we will build a more prosperous future.

Together, we will open doors of educational opportunity for all our kids.

Together, we can approach our third century with confidence,

With faith in Him who strengthened the hands of our pioneer forbearers and boundless faith in all of you, I say Indiana's best days are yet to come!

Let's get to work!

Thank you, God bless you, and may God continue to bless our beloved Indiana and all who call her home.